Cobb EMC’s ties to Cobb Energy under fire

An “iceberg of Titanic proportions” is blocking progress in the lawsuit between Cobb EMC and its customers, a judge said Wednesday.

The iceberg: a 2007 financial report for the electric cooperative’s operating affiliate, Cobb Energy.

Neither Cobb Energy nor its auditing firm, BDO Seidman, will release the report.

And that leaves both suing customers and the court without critical information, Cobb County County Superior Court Judge Michael Stoddard said.

While the co-op’s board is moving forward with a planned purchase of Cobb Energy for tens of millions of dollars, co-op customers don’t know whether Cobb Energy is “solvent or headed south down I-75 to bankruptcy court,” Stoddard said.

Lawyers for the suing customers believe the company is insolvent.

The missing annual report summarizes Cobb Energy’s financial performance for the year that ended 10 months ago.

On Wednesday, Stoddard gave customers’ lawyers permission to ask Seidman auditors directly why they won’t sign off on Cobb Energy’s 2007 financials.

Stoddard is handling discovery issues in the case, at the direction of Judge Stephen Schuster.

Stoddard reserved judgment on a second request. Plaintiffs attorneys want to see Seidman’s draft audit or other working papers.

Cobb Energy continued to argue that the documents are protected by accountant-client privilege.

Financial ties between the co-op and Cobb Energy lie at the heart of the lawsuit.

The lawsuit says the arrangement siphoned co-op assets to the benefit of co-op insiders, including Dwight Brown, who heads both companies.

Since 1998, Cobb Energy has run the co-op’s business, using former co-op assets — including all of its meters and employees — that were transferred to Cobb Energy around the same time.

The lawsuit says the relationship is full of conflicts of interest, including the fact that one man, Dwight Brown, heads both companies.

Under a 40-year contract, Cobb Energy charged the co-op a markup that grew from 2 percent to 11 percent.

It also branched into side businesses, including security, a call center, consulting, mortgages and pest control.

The co-op’s leaders have said Cobb Energy saved the co-op money by streamlining costs.

A committee appointed by the co-op’s board, though, said this summer that Cobb Energy owes the co-op $13 million.

Financials released as part of the lawsuit indicate the company doesn’t have that: Most of the company’s side businesses lost money.

The two sides are continuing to talk settlement, but have reached no agreement.

Meanwhile, Cobb EMC has struck out on its own.

On Sept. 30, CEO Brown wrote to 155 Cobb Energy preferred shareholders — a group that includes Brown. The company has yet to either comply with or appeal an order that it name them.

Brown told them the co-op’ is exploring a plan to buy their shares in Cobb Energy for what they paid. An independent auditor would have to determine if the buyout benefits the co-op long term.

Four of the co-op board members that approved the proposal, meanwhile, have yet to be elected by co-op members.

Judge Stephen Schuster, delayed a vote planned for co-op’s September annual meeting, ordering the co-op to develop a more accessible voting method and vote in 60 days.

But Cobb EMC appealed to the state Supreme Court.

The 60 days expires next week.

It’s unclear what will happen.